Inventory Systems

Question 1

What are inventories?

Answer 1

Assets held for sale in ordinary business course or in the process of production for such sale, or in the form of materials or supplies to be consumed in production or rendering of services.

Question 2

How should inventory initially be recognised?

Answer 2

Inventory should initially be recognised at cost, including all costs incurred in bringing the inventory to its location and condition of sale.

Question 3

What inventory system allows for the continuous updating of inventory item balances?

Answer 3

Perpetual inventory system

Question 4

What inventory system allows a business to determine gross margins at all times?

Answer 4

Perpetual inventory system

Question 5

When is cost of sales determined under a periodic system?

Answer 5

At the end of the financial period when the inventory counts have been done to determine the value of items sold.

Question 6

What equation will be used to determine cost of sales under a periodic system?

Answer 6

Opening trading inventory + Purchases - Purchases returns + Carriage / Railage / Freight on purchases + Import tariffs + Customs duties - Closing trading inventory

Question 7

Under a periodic system, what is recorded at point of sale?

Answer 7

Only sales revenue